Conferences - Seminars

Seminar by Prof. Yoonha Kim, Georgetown University

"Hidden Gems? How Cultural Barriers Lead to Excessive Self-Employment of High Skilled U.S. Immigrants"

Abstract
In this paper, we study the effect of linguistic-cultural differences on immigrants’ integration in mainstream labor markets. We show that these differences produce a systematic misallocation of scarce talent: highly educated, foreign-born workers more likely sort out of salaried work, and into self-employment, than otherwise similar U.S.-born individuals. This differential sorting can be theoretically understood as a rational, but flawed, response to the difficulties of credibly signaling capabilities—the cultural distance between the employer and the candidate generates noisy signals, when precise signaling is more critical for applicants to more demanding jobs. Using the American Community Survey and the Current Population Survey and measuring cultural mismatch with “linguistic distance”, we find evidence consistent with theory: not only the highly educated—who apply to more demanding jobs—but also the linguistically distant—who send noisier signals of ability—disproportionately sort into self-employment; immigrants who have culturally assimilated or who are surrounded by co-ethnics are less likely to run businesses. Furthermore, we show that immigrants’ English language deficit, among other potential drivers, does not, in and of itself, explain the differential sorting. Rather, the pattern appears to reflect inefficient allocation of talent; awareness of the phenomenon can, in principle, allow firms to better harness these hidden gems—the untapped talent pool of highly educated immigrants sorting into self-employment.